Saturday, March 26, 2016

India "missing" middle class fact of the day

This blog holds the view that contrary to perception, the Indian middle class may be far smaller than originally thought, thereby raising doubts about the assumptions held by businesses when they enter the country's market. The latest to hit the growth ceiling are the global fast food majors,

India’s once seemingly insatiable appetite for fast food has hit a wall at McDonald’s, Pizza Hut, KFC and other established global brands, deflating optimism that untapped demand in the 1.2 billion-person market will offset slumping consumption in the West and China. While the overall market for eating out is projected to expand, growth is slowing and less of it is happening at the international chains that were the trailblazers in India... The biggest global fast-food brands had been rolling out outlets at an ever-accelerating rate in Asia’s third-largest economy. Nearly half of Domino’s 1,000 stores in India, for example, were built in the past five years. But the anticipated take off in customers has been weaker than expected.

The tapering off was to be expected and the only uncertainty was how soon. That it has started binding at the initial stages itself is a matter of concern and lends further credence to the argument about the very narrow consumer base.

After pumping more than $9 billion into Indian start-ups since the beginning of 2014, investors started pulling back late last year. For the first time in years, online retail sales in April were at a lower level than December of the preceding year, according to executives at top e-commerce firms... Experts said it is a worrying sign that customers seem to cut back the moment discounts are pulled.

“All of us had hoped that once we create the habit of buying online among consumers, they will keep buying even if discounts are reduced. Factors like a wide product range and convenience of getting products delivered at your doorstep would prove to be compelling, we had thought,” said a Flipkart investor, requesting anonymity, as he isn’t authorized to speak on this topic. “And this is happening with some consumers, but the fact is that a majority of them don’t buy unless you offer steep discounts. It’s true that e-commerce companies are yet to find new ways of growing the market quickly without the help of discounts,” he added.